The Dow declined about 2% last week and long term U.S. Treasury rates continued their climb, now yielding about 5.25%. Investors in Blackstone made a lot of money when it went public. I continue to wonder if the money in private equity is in the fees they charge, see Fund of Funds, and not the deals they do. 

 

Going back to interest rates, Bill Gross of Pimco, is halfway to making good on his May 28 prediction that long term Treasury bonds were yielding 50 basis points too low, see Insomnia. They’re up over 25 basis points since then and I wouldn’t bet against them making Gross’ 50.

 

The Bear – Bear Stearns, that is – had to pump $3.2 billion into two of its subprime mortgage funds to prevent them from going belly up (and no Bear likes to be on its back). Back in March, I wrote about the coming subprime debacle, see Yellow Sub(prime)marine. The only surprise is how well contained it has been thus far, but do you really believe that the two Bear Stearns funds are the only ones in trouble?

 

There are two conclusions to be drawn from all this: 1. Stick with your convictions. When you’re right (and I hope you always are), the market may not agree/respond immediately. Don’t be swayed by the crowd – stay with what you believe. 2. Cautious investing is the order of the day. A choppy and correcting/declining stock market is likely over the next few weeks. Interest rates may continue to rise, meaning the prices of long term bonds and bond funds will decrease.

 

 If you’ve rebalanced your mutual fund portfolio and are comfortable with your risk level, it might be a good time to take the kids on a vacation.